Assignment of Auditing

The audit planning is designed to allow the auditor to evaluate and conduct the business risks, develop specific audit program and scope to test in the audit process (KosmalaMacLullich, 2003). The auditors with a good audit planning will generate more efficient audits, it can help them to maintain the competitive and their clients because the efficient audits can increase the competence and the audit quality. If the auditor with a poor audit planning, will generate a poor allocation of work, the auditor will inadequate attention to high risk areas, they will difficult to find the material misstatements, it will make a loss of their competence and get a poor audit quality. (2)

Item 8: Inherent risk is indirectly affect by the turnover in the inventory audit department because the risk of fraudulent financial reporting increased. This situation probably cause by the upper management have fraud and then leave company, and this may also affect the auditor’s assessment of control risk. All accounts are affected since it relates to risk of fraudulent financial

After the Enron debacle the responsibility of auditors shifted more towards fraud detection as the scandal highlighted the lack in auditing process with regards to fraud prevention since auditors were partaking in the fabrication and falsification of accounting statement. Thus auditors legitimized the falsified financial statement whether through inaptitude to properly conduct their work or conflict of interest between management and auditors. To sum this view it is important to keep in mind that researching misrepresentation within financial statement only became recently part of the auditor’s legal obligation.

This means that the main goals of the act in enhancing auditor independence in preventing fraud in future are faced with pressures regarding its efficiency. Case 3 Effective fraud control depends on prevention of the following three weaknesses in the internal control system. First is the static nature of internal controls. This means that internal controls might not be fluid in terms of evolution with the changes experienced in technology, business and the fraud environment. Second is the immunity of the internal control systems. For instance, if a company’s internal control system has weak control policies for its procedures and processes, then the company becomes a target for both internal and external criminal activities. Thirdly, are unclear definitions of the roles and responsibilities of ownership. By this it means that if the internal control system is not well defined to the employees, then there will be an assumption that the role of the internal controls is to only perform audits hence they would not be interested in preventing fraudulent

The purpose of Part 1 is to perform preliminary analytical procedures. You have been asked to focus your attention on two purposes of analytical procedures:

Auditors usually use the internal control to assess the adequacy of the accounting system as a basis for preparing the accounts and consider factors that will affect the risk of misstatement. There are five components of internal control such as control environment, risk assessment, controlling activities, information and communication and monitoring

An assessment of inherent risk is important for determining the possibility of material misstatement before considering internal control effectiveness (259). Obtaining an understanding of internal control is the basis for determining control risk (410). This understanding helps the auditor determine areas of weakness, which may require more attention. Analytical procedures indicate possible misstatements and unusual fluctuations requiring substantive tests of transactions or tests of details of balances for proof of misstatement occurrence. Substantive analytical procedures can also help reduce the sample sizes needed or certain tests of details of balances (406). Assessment of planned detection risk is the risk that material misstatements will not be discovered by the audit as planned and involves either disregarding internal control in the substantive approach resulting in more evidence being gathered or considering internal control in the reducing risk approach resulting in less evidence being gathered. Performing tests of controls is only necessary if one is following a reducing control risk approach. If following a substantive approach, the auditor can ignore testing controls

In addition, the auditor should achieve the understanding of the control environment by evaluating the management along with honesty level, ethical principles and control environment elements to determine the risk of misstatement. However, in the internal control evaluation he should consider the integrity, management level, policies, and responsibilities then planning to obtain sufficient evidence for supporting his opinion on the internal control (AS 5). CUC had a poor quality in the internal control system and management put the pressure and incentives to meet Wall Street expectations.

Relevant professional standards for this assignment include AU Section 230, “Due Professional Care in Performance of Work,” AU Section 316, “Consideration of Fraud in a Financial Statement Audit,” AU 319, “Consideration of Internal Control in a Financial Statement Audit.”

This report provides an analysis of dealing with professional and ethical issues when offering auditing services. It gives a brief decision-making process model by first identifying the key issues and relevant standards involved in the case and then combining theories with reality and giving a short conclusion and some recommendations at the end.

| * David should keep a straightforward and honest relationship with MAL. * David integrity will be compromised if these errors are discovered.

■ The audit manager recently conducted an interview with management in order to obtain an understanding of EC/SS’s control environment. This interview dialogue is what students rely on to assess EC/SS’s control environment.

Auditors provide a key investigation function in the business world. The law in relation to the liability of auditors changed significantly with the introduction of Companies Act 2006. It is now possible for audit firms to limit their liability towards clients through contractual agreements. The current auditing liability regime has proven to be controversial. This essay will first present the relevant liability rules and examine the underlying problems, then evaluating the significance of these rules with regard to auditing reforming.

To reduce the risks associated with accepting fax responses to requests for confirmations of accounts receivable, an auditor most likely would

143). Nearly all individuals and organizations are subject to pressure and rationalization of actions, the risk of fraud is great if internal controls are non-existent or can be overridden. It is vital to look-out for indicators that signal weakness in internal control environment. Opportunities exist for fraud due to role of process owners in the structure of internal control and the ability to avoid or override the existing controls (Golden, Skalak & Clayton, 2006 p. 134). Lack of sound corporate governance functions such as inadequacy in the extent and effectiveness of supervision by independent functions are al signals of fraud as it’s a demonstration of weak control environment. The control environment includes the continuity and effectiveness of internal audit, information technology, and accounting personnel as well as the effectiveness of accounting and reporting systems (Golden, Skalak & Clayton, 2006 p. 134). When such deficiencies are not managed or disciplinary actions put in place to check such weaknesses or override of controls, it may signal potential red